Returns for online goods purchased during the holiday season could increase double-digits and account for more than $40 billion in goods. Retailers increased the number of physical locations where shoppers can drop off returns in hopes of making returns easier.

With the holiday season in the rearview mirror, retailers are readying themselves for a barrage of returns both in stores and to their warehouses.

Fulfillment operator UPS estimates online returns will increase 26% year over year on Jan. 2, citing an increase in online shopping as the reason why. The day after New Year’s Day is one of the most popular days to return items, according to UPS, which calls Jan. 2 National Returns Day. It projects consumers will return 1.9 million packages on this day just to UPS.

Returns for goods purchased online between Nov. 1-Dec. 31 could reach $41.60 billion, according to real estate and invest firm CBRE Group Inc. The firm estimates the return rate for online orders will be 15-30%, while just 8% in stores.

This holds true at other major retailers as well, according to a new report “The 2019 Holiday Flash Report: Holiday Returns” from data analytics provider 1010data. For example, online sales at Gap.com were returned at a rate four times higher than in stores between 2015-2018, according to 1010data. 1010data bases its data on tracking the credit and debit card spend of millions of U.S. consumers and store traffic of tens of millions of consumers. The data does not factor in cash or gift card transactions, or when a shopper returns an item for store credit.

Most consumers say they plan to return or exchange unwanted gifts or holiday-related items within a month of receiving it, according to National Retail Federation survey of 7,779 adult consumers Nov. 27-Dec. 5. But just because consumers are returning items, doesn’t mean they aren’t shopping. 67% of consumers say they will continue shopping Dec. 26-Jan. 1, and 74% of consumers say they are likely to purchase something else while returning or exchanging a gift, according to the NRF survey. And this could be a purchase from a new customer. Last year, roughly one-third of store traffic to department stores and big-box retailers was from consumers who had not visited that store during the holiday season, according to 1010data.

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Consumers who want to return a product to an online-only retailer typically come into contact with UPS, FedEx or the United States Postal Service at some point to drop off the product and have it shipped back to the merchant’s warehouse. Plus, many shoppers may have purchased a product online and then return it to the store. In fact, the majority of consumers, 80%, say they prefer to make returns to a store, according to the NRF survey.

Because of this, a number of online-only retailers or retailers with only a few stores are rethinking their return policies.

For example, FedEx Inc. and Narvar Inc. offer a package pickup and return service for consumers at more than 8,000 Walgreens (No. 43 in the  2019 Digital Commerce 360 Top 1000) locations and some Nordstrom Inc. (No. 18) stores. Retailers including Urban Outfitters Inc. (No. 45), Levi Strauss & Co. (No. 233), Timbuk2 (No. 939), Arezzo & Co., Cole Haan LLC (No. 253) and Dagne Dover, allow their shoppers to return online orders to these pickup points.

Bag retailer Dagne Dover decided to offer this service to shoppers because it is one way to offer superior customer service, says Deepa Gandhi, co-founder and chief operating officer. Even though the process is for a return, having a smooth customer experience on the back-end side will help drive loyalty and increase customer lifetime value, she says.

“Not everyone has easy access to a drop-off location,” Gandhi says. About 15% of customers that are returning an item will opt to do it at Walgreens, she says.

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Some retailers with no stores, or only a handful, offer returns to physical locations by working with returns service Happy Returns. The vendor operates 700 “return bars” within physical stores in 143 metropolitan areas nationwide for an in-person return and immediate refund. Retail chains, such as Paper Source and Cost Plus World Market, house these Happy Returns hubs, which also drive foot traffic to the store, the vendor says.

Shoe brand Rothy’s (No. 341) has reduced its return rate and increased shopper conversion and lifetime value since beginning to use Happy Returns in May 2018, says Heather Howard, vice president of operations and people, without revealing specific figures.

“The industry spends so much time thinking about the fulfillment of getting your initial purchase in your hand, but doesn’t take time for what happens if it’s not the perfect item… and the whole reverse logistics side,” Howard says.

Even retail behemoth Amazon.com Inc. (No. 1) is working on easing its return process by using its physical locations, such as its Amazon Books stores, Amazon 4-Star stores, its locker locations, some Whole Food stores and more than 1,000 Kohl’s stores. Amazon announced this year that millions of products will have at least one option for a free return, as opposed to having to pay for return shipping. Amazon says it has more than 18,000 physical locations where shoppers can return products in the U.S. for free.

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